1. (U) SUMMARY: MFA Senior European Political Advisor
informed Pol/Econ officer that Gazprom representatives were
in Portugal in April to discuss the sale of liquified natural
gas (LNG) from Gazprom to Portuguese Energy Company Galp
Energia (Galp) via Algeria. A follow-up meeting is scheduled
for this Fall to discuss the proposal further as well as a
possible joint-venture for natural gas exploration in Angola.
Gazprom's growing interest in supplying gas to Europe and
its August 2006 MOU with Algerian state-owned gas provider
Sonatrach Petroleum have sparked debates in the EU over
energy security in Europe. END SUMMARY.

PRELIMINARY MEETINGS CONFIRMED


--------------------------




2. (U) On August 17, Pol/Econ officer met with Senior
European Political Advisor Liliana Araujo to discuss the
potential impact on Portugal of the August 2006
Gazprom-Sonatrach Petroleum MOU to jointly increase natural
gas exploration and production. (Note: Eighty percent of
Portugal's natural gas comes from Algeria.) Araujo noted
that energy security was a priority of every EU country and
that Portugal was no exception. She commented that Portugal
was planning to diversify its energy sources by lowering its
dependency on oil and creating a balance between importation
of natural gas in its normal state and as LNG.



3. (SBU) Araujo explained that Gazprom representatives
approached Portuguese government officials with a proposal to
procure LNG from Gazprom via Algeria when it learned of
Portugal's intentions to diversify. In April 2006, then MFA
Deputy StateSec for Foreign Affairs Bernardo Ivo Cruz and
Gazprom CEO Alexander Medvedev met to discuss the sale of LNG
from Gazprom to Galp. A follow-up meeting between Galp
officials and Gazprom representatives is scheduled for the
Fall. Arauja underscored that discussions were in the
preliminary stage and that no agreement had been reached.



4. (SBU) With regard to reports of a joint-venture
initiative in Angola, Araujo suggested that the proposal was
"too ambitious" for now, but that the idea could be included
in future discussions.


NATURAL GAS IN PORTUGAL


--------------------------




5. (U) Portugal has limited domestic energy reserves and
imports 90% of its energy. To reduce its dependency on oil
and diversify its energy supply, Portugal began importing
natural gas in 1997. By 2005, natural gas represented around
12% of total energy consumption in Portugal, with oil
representing 66%, coal 12%, and renewable energies 10%.
Portugal imports 100% of its natural gas, with 80% coming
from Algeria and 20% coming from Nigeria. Natural gas from
Algeria is transported via the Maghreb-Europe pipeline
through Spain and LNG is transported via vessels from
Nigeria to the Sines regasification-import terminal in
southwestern Portugal.




6. (SBU) COMMENT: Arraujo acknowledged that some EU
countries are concerned about Russia's increasing influence
in the energy affairs of Western Europe and expected the
Gazprom-Sonatrach MOU to raise eyebrows within the Union.
Despite this, Portugal appears willing to work with Gazprom
as part of its energy security strategy and is likely to
pursue a Gazprom-Galp deal beyond the preliminary stage.
O'Neal